Tuesday, November 03, 2015

Wednesday Watch

Evening Headlines 
  • China’s Latest Bond Scare Burns Holdouts as Default Risks Spread. The commodities slump is set to claim another bond-market casualty as a Chinese coal miner stumbles under its debt load, adding to global defaults at a six-year high. Hidili Industry International Development Ltd. said on Oct. 30 it couldn’t pay $190.6 million of bond principal and interest due Wednesday, after failing to raise money from banks or asset sales. Noteholders who shunned the miner’s buyback offer in September 2014 have seen the securities’ price slump by more than half. “Hidili’s struggle could have a chain reaction in China’s real economy,” said Ji Weijie, a credit analyst in Beijing at China Securities Co. “Banks could see rising bad debts, and smaller companies counting on distressed companies like Hidili could also fail.”
  • Chinese Home Buying in Australia Is Easing, Credit Suisse Says. Chinese demand for Australian property, which has helped propel the price of an average Sydney house to about A$1 million ($720,000), is waning as an economic slowdown at home dents confidence, according to Credit Suisse Group AG. Falling auction clearance rates in Sydney and Melbourne, two of the most popular destinations for purchasers from China in Australia, suggest there are fewer cashed-up foreign buyers, Credit Suisse analysts Damien Boey and Hasan Tevfik said in a Nov. 3 report. China’s surprise currency devaluation in August has dimmed consumer confidence and appetite for overseas property worldwide, they said.
  • Standard Chartered's Bad Loans Reveal Cracks in Asian Economies. As China’s growth sputters, the troubles at Standard Chartered Plc are another bad omen for what were once Asian economic darlings. The bank, which generates most of its income in the region, had gambled on success in emerging markets such as India, which instead saddled the lender with delinquent loans. As a result, the company which opened its offices in Mumbai under Queen Victoria is now axing 15,000 jobs and is asking investors for $5.1 billion. “Standard Chartered are Asian specialists and are in all the main markets in the region, so in looking at them you can get a good sense for credit direction and lending appetite,” said Mark Holman, chief executive officer at TwentyFour Asset Management in London, which oversees 5 billion pounds ($7.7 billion).
  • VW Emissions Issues Spread to Gasoline Cars. Volkswagen AG said it found faulty emissions readings for the first time in gasoline-powered vehicles, widening a scandal that so far had centered on diesel engines. Separately, the company’s Porsche unit said it’s halting North American sales of a model criticized by U.S. regulators. Volkswagen said an internal probe showed 800,000 cars had “unexplained inconsistencies” concerning their carbon-dioxide output. Previously, the automaker estimated it would need to recall 11 million vehicles worldwide -- more than Volkswagen sold last year. It was unclear how much overlap there was between the two tallies. The company said the new finding could add at least 2 billion euros ($2.2 billion) to the 6.7 billion euros already set aside for fixes to the affected vehicles but not litigation, fines or customer compensation. 
  • It's Too Soon to Call a Dollar Top, Says World's No. 2 FX Trader. It’s too early to call a top for the dollar, according to Deutsche Bank AG, the world’s second-largest currency trader. The greenback’s rally in anticipation of the first Federal Reserve interest-rate increase in almost a decade still has room to run, albeit at a slower pace, said Alan Ruskin, global head of Group-of-10 currency strategy at Deutsche Bank in New York. The dollar has gained 10 percent versus the euro this year after rising 14 percent in 2014.  
  • Asian Stocks Follow U.S. Higher as Commodity Producers Advance. Asian stocks rose, with the regional benchmark index heading for its third day of advance, as commodity producers climbed amid renewed global appetite for riskier assets. The MSCI Asia Pacific Index gained 0.6 percent to 134.28 as of 9:00 a.m. in Tokyo.
  • Biggest U.S. Iron Ore Producer Says Rio, BHP in 'Imaginary World'. The biggest iron ore producer in the U.S. says its larger rivals in Australia are hurting themselves as well as their competitors as they ramp-up production in an oversupplied market. With iron ore slumping to less than $50 a metric ton, revenues at the biggest miners are shrinking faster than costs, according to the head of Cliffs Natural Resources Inc., who said the majors’ expectations that rivals will quit the market aren’t being fully realized. “Prices below $50 are not comfortable to anyone, including the majors,” Chief Executive Officer Lourenco Goncalves said in a phone interview from the company’s headquarters in Cleveland, Ohio on Tuesday. “The cost-cutting is not even close to offset their loss in revenues. My entire point: the loss in revenue, totally avoidable. Self-imposed. Self-inflicted.”
  • Druckenmiller Says He’s Short the Euro, Stocks Could Be Next. Stan Druckenmiller, who boasts one of the best investor track records over the past three decades, said he’s betting against the euro again and could see himself becoming bearish on stocks. Druckenmiller, who produced average annual returns of 30 percent from 1986 through 2010 at his Duquesne Capital Management, was bearish on the euro in April before covering that position later in the year. The investor, speaking Tuesday at the New York Times DealBook Conference in New York, said he was less certain about stocks. “I could see myself getting bearish, and I can’t see myself getting bullish.” He said he was long high-beta and high-growth companies and short companies that need cyclical growth.
Wall Street Journal: 
  • China Lowers Expectations for Growth. President Xi Jinping sets 6.5% growth as new floor for economy. China’s top leader sent the strongest signal yet that the government expects the world’s second-largest economy to shift to a slower pace, suggesting Beijing could tolerate growth as low as 6.5%.
  • Sen. Bob Corker Profits on Quick Stock Trades. Tennessee Republican discloses a dozen previously unreported share purchases in a little-known real-estate firm. In the course of his Senate career, Republican Sen. Bob Corker of Tennessee has made many short-term trades in shares of a little-known Chattanooga real-estate company. Until recently, he hadn’t made public a dozen stock purchases in the firm, including several that resulted in his most profitable investments.
  • U.S. Sets New Duties on Chinese Steel. Ruling places preliminary duties of up to 236% on some imports; U.S. Steel posts another loss. The U.S. Department of Commerce slapped preliminary duties on some steel from China on Tuesday, as U.S. Steel Corp. posted another quarterly loss and cut its outlook for shipments and prices amid what it called excessive imports.
Fox News:
  • Lawmakers sound alarm over failing ObamaCare co-ops. Congressional lawmakers are raising alarm over the rapid collapse of several so-called ObamaCare "co-ops" -- government-backed alternative health plans -- that are failing, leaving tens of thousands of customers scrambling for coverage, and billions in taxpayer-funded startup loans at risk. To date, nearly half of the 23 co-ops established under the Affordable Care Act have gone or are expected to go under by the end of the year. The latest to be barred from selling insurance on the official marketplace is in Arizona.
  • Stanley Druckenmiller: Here's how Fed 'bubble' will end. Renowned hedge fund manager Stanley Druckenmiller believes the Federal Reserve has created a type of bubble that won't end well. A frequent Fed critic, the head of Duquesne Capital said the central bank has created a bubble of short-term investing through its near zero interest rates and quantitative easing. "All you do when you're doing this is you're pulling demand forward to today," Druckenmiller said Tuesday at the annual DealBook conference. "This is not some permanent boost you get. You're borrowing from the future. I think there's been such a misallocation of resources that this has gone on so long and unnecessarily (and) the chickens will come home to roost." He also blasted the culture the Fed's policies have nurtured in which companies are devoting trillions to share buybacks even after market prices have surged more than 200 percent since March 2009
  • Carl Icahn warns of a Fed 'minefield' ahead. (video) Icahn repeated his prediction of problems ahead, telling a crowd at the annual DealBook conference Tuesday that he agrees with hedge fund titan Stanley Druckenmiller, who spoke before Icahn and said Federal Reserve policies are going to cause woes for the market. "There are going to be real problems. We're walking into a minefield of what's going on with the Fed," Icahn said. "I could go on and on here, but I think we have problems."
Zero Hedge: 
ABC News: 
  • Ohio Votes Down Legalizing Pot for Medical, Recreational Use. In a single stroke, Ohio voters rejected a ballot proposal Tuesday to legalize marijuana for both recreational and medical use. Failure of the proposed state constitutional amendment followed an expensive campaign, a legal fight over its ballot wording and an investigation into the proposal's petition signatures.
Brietbart News:
  • Obama Orders Chicago School to Let ‘Transgender’ Boy Into Girls’ Locker Room. President Barack Obama’s Department of Education has ordered a suburban Chicago school to allow a boy who claims to be a girl into the girls’ locker room, whether or not the girls or their parents like it. The federal decision about who gets to use each toilet and shower in a distant Chicago school came after a male student sued a high school in Palatine, a northwestern suburb of Chicago. The suit claims that the student’s “civil rights” were violated by a school rule which provided the two sexes their own restrooms and locker rooms.
  • Keystone delay heralds long-term pain for Canadian oil producers. A further delay or outright rejection of the TransCanada Corp Keystone XL project risks a looming capacity crunch on Western Canada's pipeline network, causing more pain for producers already struggling with weak global crude prices. In the latest twist in the seven-year Keystone XL saga, TransCanada on Monday asked the U.S. State Department to pause its review of the permit, a move seen pre-empting a possible rejection by U.S. President Barack Obama.
Financial Times:
  • Banks face fresh pressure on physical commodities. US banks that handle physical commodities will be forced to hold large new capital cushions under bold Federal Reserve plans to hedge against costly disasters such as tanker spills or gas pipeline explosions. The Fed wants to use capital charges to discourage banks from risky activities involving hazardous materials that could threaten their survival in the event of a catastrophe, according to people briefed on the matter.
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are +.50% to +2.0% on average.
  • Asia Ex-Japan Investment Grade CDS Index 124.25 -4.0 basis points.
  • Asia Pacific Sovereign CDS Index 68.75 -2.0 basis points.
  • Bloomberg Emerging Markets Currency Index 72.48 +.1%. 
  • S&P 500 futures +.23%.
  • NASDAQ 100 futures +.29%.

Earnings of Note
  • (DDD)/.08 
  • (AGN)/3.43 
  • (AVP)/.07 
  • (BDX)/1.90 
  • (CDW)/.79 
  • (CHK)/-.13
  • (HMC)/73.79
  • (LL)/-.16
  • (KORS)/.89
  • (REGN)/3.21
  • (SNH)/.46
  • (SODA)/.20
  • (SSYS)/-.01
  • (TWX)/1.09
  • (WCG)/.95
  • (WEN)/.08
  • (CF)/.73
  • (CSC)/1.16
  • (FB)/.52
  • (FEYE)-.45
  • (MRO)-.40
  • (MET)/.76
  • (MCHP)/.63
  • (QCOM)/.86
  • (RGR)/.70
  • (RIG)/.66
  • (WFM)/.34
Economic Releases
8:15 am EST
  • The ADP Employment Change for October is estimated to fall to 180K versus 200K in September.
8:30 am EST
  • The Trade Deficit for September is estimated at -$41.0B versus -$48.33B in August.
9:45 am EST
  • Final Markit US Services PMI for October is estimated to fall to 56.5 versus 56.9 in September.
10:00 am EST
  • The ISM Non-Manufacturing Composite for October is estimated to fall to 56.5 versus 56.9 in September.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,566,670 barrels versus a +3,376,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,050,000 barrels versus a -1,137,000 barrel decline the prior week. Distillate supplies are expected to fall by -1,725,000 barrels versus a -2,951,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.19% versus a +1.2% gain prior.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Yellen speaking to the House, Fed's Fischer speaking, Fed's Harker speaking, UK Services PMI, BoJ Minutes, weekly MBA Mortgage Applications report, (COH) annual meeting and the (AA) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

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